Question

Emily, age 58, has been a participant in the Icon, Inc. ESOP for fifteen years. She plans to retire at 65. At the end of this year, Emily’s entire account balance is comprised of Icon stock valued at $1,000,000. Emily believes that Icon has a bumpy future ahead and would like to diversify some of her ESOP investments. (She has not diversified any interest in ICON prior to this time.) How much must Icon allow Emily to diversify this year?

Answer 1

Emily can diversify up to 25% of her ESOP investments, which is $250,000 of her $1,000,000 total Icon stock this year, under ERISA regulations.

Step-by-step explanation:

Understanding ESOP Diversification Requirements:

Regarding the question about how much Icon, Inc. must allow Emily to diversify this year from her ESOP: The rules regarding ESOP diversification are outlined in the Employee Retirement Income Security Act (ERISA). Participants in an ESOP who are between ages 55 and 60 and have participated in the plan for at least 10 years are eligible to diversify a portion of their accounts. The diversification requirement allows an employee to diversify up to 25% of the employer securities that are subject to the diversification requirement. Since Emily is 58 and has been a participant for 15 years, she can diversify up to 25% of her ESOP investments this year if the plan allows it and it complies with the ERISA regulations.

Emily's account balance is currently valued at $1,000,000, all in Icon stock. Consequently, Icon must allow her to diversify up to $250,000 worth of Icon stock this year (25% of $1,000,000). The actual process for diversification will depend on the specific plan documents and administrative procedures followed by Icon, Inc.

Answer 2

How much must Icon allow Emily to diversify this year?

The answer is $250,000

Step-by-step explanation:

• After attaining the age of 55 years and participating already for ten years in the ESOP.
• Emily will be allowed to diversify the value equal to 25% of investments.
• 50% of the investment is allowed to be diversified if it is final year of participation but in the present case it is not the final year before the retirement of the Emily so she will not be allowed 50% diversification and only up to 25% is allowed on which the percentage of investment already diversified in previous years will also be reduced.
• Since here in the past no amount has been diversified by Emily so she will be allowed 25 % of investment to diversify in the current year which comes to $250,000 ($1,000,000* 25%). Thus the answer is $250,000.